India has no plans to curb capital outflows

New Delhi: India has no plans to tax or impose restrictions on capital outflows, a top finance ministry adviser said on Monday, adding, the government will instead focus on liberalizing fund inflows into the economy, particularly via overseas borrowing.

Foreign institutional investors (FIIs) have sold more than $2.2 billion worth of Indian shares in August, and the partially convertible rupee last Friday touched 49.90 per dollar, its weakest level since mid-May 2009.

“I do not think we have anything to suggest to us any such thing," Dipak Dasgupta, principal economic adviser to the ministry of finance told the news agency when asked about the possibility of India imposing curbs on capital outflows.

“Instead of trying to restrict the outflow, it is quite the opposite. In fact, what we are trying to do, as you have seen in the ECB (external commercial borrowing) regulation changes, is actually to make it a little more comfortable yet prudent to get inflows of capital to come to India."

Dasgupta said that although the RBI had to take a decision on a daily basis, the government felt it would not be easy to change the “equilibrium exchange rate" driven by global factors.

Several analysts have called for RBI to intervene in the forex market in order to prevent the recent sharp depreciation in the rupee from fuelling imported inflation, which could add to already high domestic price pressures.

“What drives the dollar’s valuation is so far bigger. Whatever we may try to do, absolutely you cannot affect it," he said.

Last week, Subir Gokarn, a deputy governor of RBI, said the RBI would maintain its stance of intervening in the foreign exchange market only to reduce volatility.

The RBI has refrained from intervening in the foreign exchange market for eight straight months until July, latest central bank data showed earlier this month. However, there has been speculation in the forex market over the last few days that the RBI may have stepped in to support the rupee.

“You treat a problem like a doctor where the problem lies. So at this point, the problems are not with us. The problems are with the global markets," he said.